Which of the Following Is True for Debt Service Funds

question 63

Multiple Choice

Which of the following is true for debt service funds?

• A) A legally required budget should be recorded in the accounts.
• B) A combining balance sheet may not be prepared for a comprehensive annual financial report (CAFR)when more than one debt service fund exists.
• C) Encumbrance accounting is often used.
• D) GAAP requires that a separate debt service fund be established for each bond issue.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its short-term assets.

Liquidity

The ability of an asset to be quickly converted into cash without significant loss in value.

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.

Income Statement

A financial document that provides a summary of a company's revenues, expenses, and profits over a specific period, detailing its ability to generate earnings.